Part 36 offers – latest ruling refuses to apply consequences to successful party

June 9, 2019

 

Since the introduction of the additional consequences within CPR 36.17(4) consequent to a Claimant receiving a judgement in more favourable terms than their own offer, there has been debate about the effect of those additional consequences and how they should operate and be applied.

 

The first major challenge was taken in the matter of Lowin v W Portsmouth & Company in which, at first instance, it was ruled that the cap to costs in provisional assessment was disapplied where a Claimant bettered their own Part 36 offer, due to the award of indemnity costs. However, this was subsequently overruled on Appeal in W Portsmouth & Company v Lowin [2017] EWCA Civ 2172 , with the Asplin LJ in the Court of Appeal finding that she did “…not consider  that the Judge was right to conclude as she effectively did at [28] and [31] of the judgment that there is a material conflict between costs assessed on the indemnity basis and costs assessed on that basis subject to a cap…” and that consequently “…no tension or conflict arises…” in the rules such “…that CPR Part 36 contains general provisions which apply, for the most part, across the spectrum of civil litigation whereas rule 47.15 applies to a discrete class of cases to which the provisional assessment provisions apply. Accordingly, rule 47.15 would have taken precedence.”.

 

That appeared to put that issue to bed once and for all, and thus parties began to look to other areas where the potential consequences of CPR 36.17(4) could be both deployed and utilised.

 

Earlier this year, in the matter of JLE v Warrington & Halton Hospitals NHS Foundation Trust [2018] EWHC B18 (Costs), query was raised as to whether the consequences could be ‘severable’, or whether they had to operate together. In that matter, the Claimant made a part 36 offer to accept costs, inclusive of interest, of £425,000 and upon detailed assessment Master McCloud ordered the defendant to pay £421,089 plus interest of £10,723.

 

In relation to the CPR 36.17(4) consequences, the Defendant argued that it would be unjust to award the 10% uplift given the moderate amount by which the Claimant had bettered her offer, being only some approximately £7,000, in comparison with the over £43,000 which the Claimant stood to gain if the specific consequence under CPR 36.17(4)(d) were to be applied.

 

Contrary to the argument raised by the Defendant that such a finding would be unjust, the Claimant argued that, not only were such penalties not intended to be compensatory, but rather to encourage and incentivise settlement between the parties, but also that the court did not have the power to order only some of those consequences.

 

Master McCloud, in reaching her adjudication, highlighted three “most significant” factors in the case:

  • The very small margin by which the offer was beaten relative to the much greater size of the bill;

  • “The fact that where a bill is reduced (and seems to have been expected to be reduced) significantly, it will on the whole generally be very difficult for a party to know precisely or even approximately to within a few percent, where to pitch an offer such that even a competent costs lawyer would operate close to chance level as to whether an offer is likely to be ‘over’ or ‘under’ at the end of the hearing”; and

  • The large size of the 10% award relative to the margin by which the offer was beaten.

 

concluding that the “bonus” of 10% “…would be a clearly disproportionate sum and it would be unjust to award it. That is also the case when one looks at the overall effect in the round of what would be the cumulative penalties in sub-rules (a)-(c) added to (d)”.

 

Accordingly, clarification was brought to that particular area, such that no longer should the consequences operate wholesale, but rather could be individually discarded where imposition would be unjust.

 

So, where next?

 

Far from having disposed of all of the arguments over the operation of Part 36 offers, in seeking to both encourage settlement and dispose of matters, parties have been employing ever more inventive offers, the latest coming to the attention of the SCCO in the matter of White & Anor v Wincott Galliford Ltd [2019] EWHC B6 (Costs).

 

In that matter, the Claimant had made a Part 36 offer in respect only of the level of hourly rate and, upon the court awarding the rate as per the offer, contended that they should benefit from the consequences under CPR 36.17(4)(d) (the additional 10%) as they had achieved a result at least equivalent to their offer.

 

Whilst finding that the offer was a valid offer, relating to an “issue that arises” (CPR36.5(1)(d)) rather than an offer for the whole of the dispute, Deputy Master Friston considered that the Defendant had “…easily shifted the ‘formidable obstacle’…” of proving that it would be unjust to make such an award and that, further, “…the court must guard against it being used for the purposes of mere gamesmanship…”.

 

The Deputy Master continued

 

 “An offer in respect of ‘an issue that arises’ may well allow an offeror to obtain certain benefits (such as an award of costs in respect on that issue on the indemnity basis), but those benefits could not, in my view, be allowed to propagate so as to extend well beyond the issue that is the subject of the offer.

 

“The suggestion that a paying party ought to pay an ‘additional amount’ on the whole of a receiving party’s profit costs merely because he or she did not accept an offer in respect of only one component of those costs (namely, the hourly rates) is, in my view, unreal. It would be unjust to do what the claimants ask.”

 

and that offers of this type were unlikely to achieve the aims of CPR 36, namely to encourage settlement concluding that “It is far more likely that they would lead to unprepossessing and time-consuming disputes about what effect they ought to have.

 

“Detailed assessments (and provisional assessments in particular) would become unwieldy if the court were routinely to allow parties to rely on offers such as the offer.”

 

A major plank underpinning his ruling was the fact that he considered that, even had the offer been accepted, such acceptance would have had “almost no bearing” on the way in which the parties dealt further with the matter.

 

“Given the fact that the offer was made after points of dispute and replies had been drafted, the only effect that acceptance would have had would have been to cause the court to record the agreed hourly rates rather than to adjudicate upon them.

 

“In the context of a provisional assessment, this would have saved almost no court time at all, nor would it have prevented the parties from incurring costs of any significant amount.”

 

This latest ruling serves to highlight both the useful and flexible nature of CPR 36 offers, but also that they should not be used in a manner which would not be seen as promoting settlement, but rather simply to seek an advantage or windfall.

 

Whilst this is the latest guidance provided in respect of Part 36 offers and their operation, doubtless parties will continue to develop and devise new and interesting tactical approaches to their matters, and therefore the writer is almost certain that it will not be the last.

 

If you have any queries about CPR 36 or any other costs related matters, please give us a call on (01772) 435550 or e-mail costs@sphcosts.com.

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